What Does Health Care Reform Mean for You?

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Damon Thompson of G& A Partners examines the Patient Protection and Affordable Care Act (PPACA) that was signed into law on March 23, 2010.

G&A Partners is a comprehensive human resource outsourcing provider.

For more great HR webinars and training visit www.gnapartners.com.

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What Does Health Care Reform Mean for You?

  1. 1. What does health care reform mean for you? Damon Thompson 10/28/10
  2. 2. Agenda • Overview • Timeline • Grandfathering • Small business tax credit • Discrimination testing: 105(h) • Sample of additional mandates • Additional notice requirements • How to handle the increased administrative burden • Q&A
  3. 3. Overview • Patient Protection and Affordable Care Act (PPACA) – Signed into law on March 23, 2010 – Stated goals • Protecting the ability of individuals and businesses to keep their current plan • Providing consumer protections that give Americans control over their own health care • Create more affordable choices through Exchanges – Are we confident this will be achieved? Let’s examine the details.
  4. 4. Timeline • January 1, 2010 – Small business tax credit: Phase I • March 23, 2010 – Grandfathering • September 23, 2010 – Annual benefit limits restricted, no lifetime benefit limits – Coverage of young adults (to 26) – Preventative care – Emergency room care – No preexisting conditions (children under 19) • Addition of children under 19 is not subject to preexisting waiting period
  5. 5. Timeline • January 1, 2011 – Medical loss ratio (Premium to claims ratio) • Small group is 80%, large group is 85% – Value of healthcare reflected on W-2 – OTC drugs no longer covered under FSA, HSA & HRA • Jan 1, 2013 – New taxes – detailed later • Jan 1, 2014 – Small business tax credit: Phase II – No annual limits on benefits – Waiting periods shortened – State exchanges for individual plans – Adult children (to 26)
  6. 6. Grandfathering “If you like what you have, you can keep it.”
  7. 7. Grandfathering • All health plans (grandfathered or new, individual or employer-sponsored) must provide the following (as of 9/23/2010): – No lifetime or annual limits on coverage for all plans – No rescissions of coverage when people get sick and have previously made an unintentional mistake on their application – Extension of parents’ coverage to young adults under 26 years old • Employer-sponsored plans (grandfathered or new) must provide the following: – No coverage exclusions for children with pre-existing conditions – No “restricted” annual limits (e.g., annual dollar-amount limits on coverage below standards to be set in future regulations)
  8. 8. Grandfathering • If a plan loses its grandfathered status, then consumers in these plans will gain coverage of recommended prevention services with no cost sharing (deductibles, co-insurance, co-pays) • What does this mean for you? – Blood pressure, diabetes, and cholesterol tests – Many cancer screenings – Counseling from your health care provider on such topics as quitting smoking, losing weight and reducing alcohol use – Routine vaccinations – Flu and pneumonia shots – Counseling, screening and vaccines for healthy pregnancies – Regular well-baby and well-child visits (birth to age 21)
  9. 9. Grandfathering • Existing plans may lose grandfathered status by making the following changes: – Significantly Cut or Reduce Benefits – Raise Co-Insurance Charges – Significantly Raise Co-Payment Charges • Can increase by no more than $5 (adjusted annually for medical inflation) or a percentage equal to medical inflation plus 15 percentage points – Significantly Raise Deductibles • Can increase deductibles and out-of-pocket by a percentage equal to medical inflation plus 15 percentage points – Significantly Lower Employer Contributions • Cannot decrease the percent of premiums the employer pays by more than 5 percentage points – Add or Tighten an Annual Limit on What the Insurer Pays – Change Insurance Companies
  10. 10. Small business tax credit • Small employers with no more than 25 full-time equivalent employees and average annual wages of less than $50,000 that purchase health insurance for employees will receive a tax credit. – Full-time equivalents calculated by dividing the total number of hours for which the employer pays wages by 2080
  11. 11. Small business tax credit • Phase I - tax years 2010 through 2013 – Employers who contribute at least 50% of the total premium cost may receive a tax credit of up to 35% of the contribution • Full credit available to employers with 10 or fewer employees and average annual wages of less than $25,000 • Tax-exempt small businesses meeting these requirements are eligible for tax credits of up to 25% of the employer’s contribution toward the employee’s health insurance premium.
  12. 12. Small business tax credit • Phase II – tax years 2014 and later – Eligible small businesses that purchase coverage through the state Exchange and contribute at least 50% of the total employee premium cost may receive a tax credit of up to 50% of the contribution. The credit will be available for two years. • Full credit available to employers with 10 or fewer employees and average annual wages of less than $25,000 • Tax-exempt small businesses meeting these requirements are eligible for tax credits of up to 35% of the employer’s contribution toward the employee’s health insurance premium.
  13. 13. Small business tax credit • How to determine the amount of the credit • Example – Auto Repair shop with 10 employees gets $15,750 credit for 2010 » Employees: 10 » Wages: $250,000 total, or $25,000 per worker » Employee healthcare costs: $45,000 » (assuming 75% contribution towards $500 monthly premium) » 2010 Tax credit: $15,750 (35% credit) » 2014 tax credit; $22,500 (50% credit)
  14. 14. Small business tax credit • How does the sliding scale apply to the credit? • Example – For the 2010 tax year, a qualified employer has 12 FTEs and an average annual wage of $30,000. The employer pays $54,000 in healthcare premiums for those employees (which does not exceed the average premiums for the small group market in the employers state and/or region). And otherwise, meets the requirements for the credit. The credit is calculated as follows: » Initial amount of credit determined before any reduction: (35% x $54,000) = $18,900 » Credit reduction for FTEs in excess of 10: ($18,900 x 2/15)= $2,520 » Credit reduction for the average annual wage in excess of $25,000: ($18,900 x $5,000/$25,000)= $3,780 » Total credit reduction: ($2,520 + $3,780)= $6,300 » Total 2010 tax credit: ($15,750-$6,300)= $9,450
  15. 15. Small business tax credit • Can a client of a PEO receive this credit? • Yes. • Will all premiums in 2010 be counted, including those incurred before the passage of the Act? • Yes.
  16. 16. Discrimination testing: 105(h) • Effective six months after enactment • Prohibits new group health plans from establishing any eligibility rules for health care coverage that have the effect of discriminating in favor of higher wage employees. • Non-Discrimination - Plans may not discriminate in favor of “highly compensated individuals” in terms of eligibility to participate and benefits • Highly compensated individual is – One of the five highest paid officers – More than 10% shareholder – Highest paid 25% of all employees • Noncompliance results in an excise tax of $100 per day per individual discriminated
  17. 17. Employer Mandates • Effective January 1, 2014 – An employer with more than 50 employees that does not offer coverage and has at least one full-time employee who receives a premium tax credit will be assessed a fee of $2,000 per full-time employee, excluding the first 30 employees from the assessment. – An employer with more than 50 employees that offers coverage but has at least one full-time employee receiving a premium tax credit will be assessed the lesser of: • $3,000 for each employee receiving a premium credit or $2,000 for each full-time employee. – Employers that impose a waiting period before employees can enroll in coverage will be required to pay $400 for any full-time employee in a 30-60 day waiting period and $600 for any employee in a 60-90 day waiting period. – An employer that offers coverage to employees must provide a free choice voucher to an employee whose income is less than 400% of the federal poverty level if the employee’s premiums are more than 8% but less than 9.5% of his income and he chooses to enroll in a qualified health plan through an exchange. – Employers with more than 200 employees must automatically enroll employees into health insurance plans offered by the employer. Employees may opt out of coverage.
  18. 18. Additional notice requirements • Notices – Benefit determination – Patient protection – Grandfathered plans – Lifetime maximums – “Adult” children – Summary of benefits – Exchanges – Auto enrollments – Quality of care
  19. 19. Additional reporting requirements • Reporting – IRS – W-2 – 1099 – Small business tax credit – Quality of care
  20. 20. General IRS reporting – Premiums paid for each employee – Dollar amounts for every vendor paid $600 or more annually – # of months that company annually provides benefits – Length of waiting periods – Monthly premium for lowest cost health plan offered – Employer’s share of total premiums – Number of full-time employees for each month of the year – Name, address, SS# of each full-time employee and # of months that employee was covered during the plan year
  21. 21. W-2 Reporting • Aggregate costs: – Major Medical – Separate Rx – Medicare supplements – EAPs – Dental/Vision • What is excluded? – Long term care – Accident/disability income plans – Specific disease/illness policies (i.e., cancer) – Archer FSA, MSA or HSA employee contributions (until 2018)
  22. 22. 1099 Reporting • 2012 – $600 threshold to any vendor – Services AND tangible goods – Individuals AND corporations
  23. 23. How are we going to pay for this? New taxes. • New Taxes (Red: new tax beginning that year) – 2010 H.S.A. ineligible distributions taxes at 20% vs. 10%, $2.3 billion apportionment among drug companies retro to 2009 sales. – 2011 H.S.A. tax again, Drug tax again, – 2012 H.S.A. tax again, Drug tax again, $2.00 pe/py tax to fund Outcome Based Research – 2013 H.S.A. tax again, Drug tax again, $2.00 pe/py tax to fund Outcome Based Research, FSA capped, medical deduction threshold increases, $2 billion tax on medical device mfgs., medicare tax increase, 3.8% income tax on unearned income – 2014 1% of income for not enrolling, H.S.A. tax again, Drug tax again, $2.00 pe/py tax to fund Outcome Based Research, FSA capped, medical deduction threshold increases, $2 billion tax on medical device mfgs., medicare tax increase, 3.8% income tax on unearned income, Free ride penalty tax, $8 billion premium tax – 2015 2% of income for not enrolling, H.S.A. tax again, Drug tax again, $2.00 pe/py tax to fund Outcome Based Research, FSA capped, medical deduction threshold increases, $2 billion tax on medical device mfgs., medicare tax increase, 3.8% income tax on unearned income, Free ride penalty tax, $11.3 billion premium tax – 2016 2.5% of income for not enrolling, H.S.A. tax again, Drug tax again, $2.00 pe/py tax to fund Outcome Based Research, FSA capped, medical deduction threshold increases, $2 billion tax on medical device mfgs., medicare tax increase, 3.8% income tax on unearned income, Free ride penalty tax, $13.9 billion premium tax – 2017 % of income is indexed for not enrolling, H.S.A. tax again, Drug tax again, $2.00 pe/py tax to fund Outcome Based Research, FSA capped, medical deduction threshold increases, $2 billion tax on medical device mfgs., medicare tax increase, 3.8% income tax on unearned income, Free Ride penalty tax, $14.3 billion premium tax – 2018 % of income is indexed for not enrolling, H.S.A. tax again, Drug tax again, $2.00 pe/py tax to fund Outcome Based Research, FSA capped, medical deduction threshold increases, $2 billion tax on medical device mfgs., medicare tax increase, 3.8% income tax on unearned income, Free ride penalty tax, indexed premium tax – 2019 % of income is indexed for not enrolling, H.S.A. tax again, Drug tax again, $2.00 pe/py tax to fund Outcome Based Research FSA capped, medical deduction threshold increases, $2 billion tax on medical device mfgs., medicare tax increase, 3.8% income tax on unearned income, Free ride penalty tax, 40% tax on premiums triggered by Cadillac tax – tax is paid by insurance company, indexed premium tax – The IRS estimates that the Cadillac tax alone will provide $2.5 trillion – The IRS estimates ALL other taxes will total $1.5 trillion
  24. 24. How a PEO can reduce the increased administrative burden • Affordable benefits through economies of scale • Benefits expertise & benefit coverage administration – We can sift through and manage the complexities of health care reform • Back office technology and HR expertise • Single source solution
  25. 25. Conclusion • Will we achieve the stated goals? • Protecting the ability of individuals and businesses to keep their current plan • Providing consumer protections that give Americans control over their own health care • Create more affordable choices through Exchanges
  26. 26. Thank you Questions? Damon Thompson dthompson@gnapartners.com

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